Huggins CEO puts restructuring decision in perspective

Connelly optimistic about the future despite present difficulties

WOLFEBORO — In a wide-ranging interview last Friday, Feb. 1, that followed last Wednesday's announcement of restructuring at Huggins Hospital, CEO Michael Connelly went over the factors that led to the decision and provided a measured but optimistic view of the hospital's future.

On Jan. 30 Huggins announced that it was reducing its workforce by 24 employees and closing eight other open positions in order to adjust to the demand for its services, a process described as "rightsizing." The 24 positions represented 5.3 percent of the 455 people employed by Huggins.

Connelly said a major factor in the decision was a decline in patient volumes over the past three years, from 2010 through 2012. During that period, acute inpatient days fell by 13.4 percent, the number of radiology tests dropped by 16 percent, laboratory tests fell by 9.4 percent, and the number of emergency room visits declined by 2.5 percent. Skilled nursing/swing bed days also fell by 70.9 percent, but that was primarily due to the closure of the Transitional Care Center in October 2011.

Huggins is not alone in experiencing a drop in demand for healthcare services. A July 2010 story in the Wall Street Journal reported a nationwide decline in visits to doctors, which at that time was attributed to the increasing share of healthcare costs paid by covered employees as well as the job losses that followed the financial meltdown of 2008. A 2011 report from Moody's Investors Services said that changes in employee benefits plan designs as well as new medical management techniques such as employee wellness programs are playing a large role in reducing demand for healthcare services.

The restructuring at Huggins was made to adjust the workforce to match the demand for services, Connelly said. No programs or services for patient care were eliminated, though staffing in some areas was reduced, for example, from 12 to 10 employees. Much of the change was done in administrative and non-clinical areas.

In determining what positions could be cut, Huggins used available national benchmarks, but, Connelly noted, it is tricky to apply national benchmarks to smaller hospitals like Huggins with its lower patient volumes and staffing levels. The challenge is to have the staff you need to provide the services most of the time. "You can't staff for peak periods," Connelly said, "but you need to have the flexibility to meet demand when it occurs." The higher demand period for Huggins is in the summer when demand for emergency and other outpatient treatment services grows. Inpatient care, however, is not seasonal.

Medicare, Medicaid and other payments

A second factor in the decision is that up to half of Huggins' patient services are paid by Medicare, and there is great pressure on all Medicare providers to be more efficient and not increase costs. This pressure on costs is likely to continue, Connelly said, as the Affordable Care Act is implemented. When that program goes into effect next year it is estimated that as many as 60,000 currently uninsured people will be added to the Medicaid program in New Hampshire. Providing insurance for these patients will help hospital reduce the level of charitable care they provide to those without insurance. In 2012 Huggins provided $5.1 million in charitable care, up from $4.3 million in 2010. The charitable care total includes care provided to uninsured patients as well as uncompensated costs for taking care of Medicaid patients.

However, the New Hampshire Hospital Association is expecting a reduction in what is known as Disproportionate Share Hospital (DSH) adjustment payments that provide additional help to those hospitals that serve a significantly disproportionate number of low-income patients. Reduction in DSH funding could wipe out the gains from lower charitable care costs. DSH payments to Huggins in 2012 were $4.9 million, up from 4.3 million in 2010, covering or (in the case of 2012) coming close to covering charitable care costs.

All hospitals are required to pay a Medicaid Enhancement Tax (Huggins pays about $2.5 million a year, which is not reimbursed). Ten of the state's largest hospitals have sued the state after the Legislature cut $250 million in Medicaid funding in the current biennial budget; last September a federal judge rejected the state's motion to dismiss the suit, allowing it to proceed.

Connelly said commercial health insurers are also pulling business away from hospitals statewide to walk-in, ambulatory care clinics and other non-hospital facilities.

The reduction in patient volumes, the pressure to control costs from Medicare and other insurers, and the implementation of the Affordable Care Act are facts of life that Huggins and other critical access hospitals like it have to deal with. "We have no control over these developments," Connelly said.

What Huggins has done

It is not as if Huggins has not tried to adjust to these factors before. The $52 million renovation project undertaken in 2008 was done to make the hospital more efficient and better able to control its own costs. The new building allowed Huggins to reduce its utility and other operating costs substantially while getting an increase in its Medicare reimbursement rate to pay for the construction costs.

The new hospital also did not increase the number of inpatient beds available. Even at that time the assumption was that more services would be provided on an outpatient basis and through satellite offices.

"We have to beef up our primary care and focus on keeping people healthy," Connelly said, citing a remark made at a recent medical conference that "we have to change from a sick care system to a health care system."

One objective of the recent restructuring is to provide a more flexible staffing model that is better able to serve the community and "more nimble."

Connelly said he is very encouraged by the recent collaborative arrangement with Wentworth-Douglass Hospital, a relationship that is still developing. He sees Huggins being able to reduce basic costs in areas like information technology, billing and collections, physician practice management and group purchasing by working closely with the Dover hospital.

In addition to these back office areas, Connelly said Huggins is also relying on Wentworth-Douglass to recruit hospitalists – physicians who look after patients while they are in the hospital. The emergency department and intensive care unit are improving the transfer protocols where patients needing a higher level of care can be transferred efficiently: that process also includes reviewing cases after transfer to see what could be done better.

Connelly also sees other services offered by Wentworth-Douglass being made available at Huggins, including oncology services and wound care and stroke care programs.

Despite his optimism that Huggins is now better able to function in a difficult heathcare environment, he emphasized the decision to reduce staff was made to ensure the hospital's survival – and it was a hard one to make. "We have very caring people doing their best," he said. "People's livelihoods are affected. But we have to make sure the hospital will be here in the future."

On the Monday following the Friday interview, Connelly called to say he has heard that there is a rumor that Huggins will be reducing or eliminating its physician practices. "There are no plans to do so, and no reductions were involved in the decision announced last Wednesday."